Traditional IRA vs. Roth IRA

An IRA is one of the most common retirement savings accounts, and when opening one, you'll need to choose between two main types: Traditional or Roth IRA.

TLDR: The main difference between a Traditional IRA and a Roth IRA is how and when you get a tax break.

• Contributions to traditional IRAs are tax-deductible, but withdrawals in retirement are taxable as income.

• Contributions to Roth IRAs are not tax-deductible, but the withdrawals in retirement are tax-free.

And while you can have both types of IRAs, there are additional differences that could make you decide which one is right for you.

How to choose between the two?

First, let's clarify that both are good options. Often choosing between the two comes down to a seemingly simple question: do you think your tax rate will be higher or lower in the future?

If you can answer that question definitively, you can theoretically choose the type of IRA that will give you the biggest tax savings: If you expect to be in a higher tax bracket in retirement, consider a Roth IRA and its delayed tax benefit. If you expect lower bracket in retirement, consider a traditional IRA and its upfront tax advantage.

We said seemingly simple question - it's hard to anticipate what your tax rate will be in retirement, particularly if retirement is years away. There are a few other ways to determine whether a Roth or traditional IRA is best for you.

Check your IRA eligibility: https://www.irs.gov/retirement-plans/traditional-and-roth-iras

TLDR:

• Your age and taxable income play an important role

• If you are married, depending on how you file your taxes can also play a role

Open an IRA account today